Rite Aid Corp. has shored up its finances with an offering of $410 million in senior secured notes due in 2016.

Rite Aid, refinancing, debt, senior secured notes, term loan, credit facility, revolving credit, liquidity, Fitch Ratings, drug store, Brooks Eckerd, Russell Redman

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Refinancing moves give Rite Aid a boost

June 29th, 2009

CAMP HILL, Pa. – Rite Aid Corp. has shored up its finances with an offering of $410 million in senior secured notes due in 2016.

The bond offering is part of a plan to refinance some debt that is maturing in September 2010. The refinancing also includes a new $525 million term loan due in June 2015, which Rite Aid noted is $125 million more than it had previously announced.

In a filing with the Securities and Exchange Commission, the company said proceeds from the new loan were used to repay a $145 million term loan due September 2010; repay $350 million of the amounts outstanding under a $1.75 billion senior secured revolving credit facility, also due September 2010; and to pay related fees and expenses.

Also as part of the refinancing, Rite Aid plans to enter a new $1 billion senior secured revolving credit facility due September 2012. At presstime, the company said it had obtained $900 million in commitments.

Plans call for the proceeds from the offering of the notes, along with borrowings under the new revolver, to be used to repay the remaining amounts outstanding and replace Rite Aid’s existing revolving credit facility, as well as fund associated fees and expenses.

After Rite Aid announced the refinancing, Fitch Ratings upgraded the drug store chain’s ratings outlook. “The outlook revision to stable from negative reflects Rite Aid’s progress in refinancing 2010 debt maturities, thus alleviating liquidity concerns,” Fitch stated.

“The rating also reflects Rite Aid’s strong market share position as the third-largest U.S. drug retailer and management’s concerted efforts to improve the productivity of its store base and manage liquidity through working capital reductions and other cost-cutting initiatives.”

Rite Aid has been working to bolster its liquidity as it struggles amid a rough sales climate, rising competition and the integration of acquired Brooks Eckerd Pharmacy stores. “Once the refinancings are successfully completed, Fitch anticipates [Rite Aid] management can turn its full focus on improving core operations,” the ratings agency said.

Last month Rite Aid saw a 0.6% uptick in same-store sales, fueled mainly by increased pharmacy business. Excluding the Brooks Eckerd stores, same-store sales rose 1.5%, the company said. Total drug store sales for the five weeks ended May 30 fell 1.3% to $2.51 billion.

For the 13-week quarter ended May 30, same-store sales also gained 0.6% and were up 1.5% excluding the Brooks Eckerd units, Rite Aid said. Total drug store sales in the quarter slipped 1.2% to $6.51 billion.

The sales news encouraged investors, boosting Rite Aid’s stock. Its shares opened at $1.45 and closed at $1.66 the day that May results were announced. The company’s stock has seen a resurgence lately, breaking $1 per share in May after hovering in the 20- to 30-cent range during the early part of the year.

At presstime, analysts polled by Thomson Financial forecast a loss of 13 cents per share, on average, for Rite Aid’s fiscal 2010 first quarter ended May 30, up from a loss of 20 cents per share in the prior-year quarter. They project total sales to dip 0.9% to $6.55 billion.

In a recent call with analysts, Rite Aid management outlined efforts to strengthen the company’s operating results. Key projects include store segmentation and associated store operating models, SKU optimization, distribution network consolidation, private label expansion, and a pharmacy loyalty program.



Rite Aid wraps up $1.9 billion refinancing